Sanctions against Russia - impacts for New Zealand businesses
4 March 2022
Over the last few weeks, coordinated and broad ranging sanctions have been imposed against Russia in response to its actions in Ukraine.
The situation is fast-evolving - in this update we provide a snapshot of how the current sanctions might affect New Zealand businesses, and what you should be considering. In particular, New Zealand businesses with Australian directors, or those who make transactions in US dollars, should be aware that they could breach overseas sanctions regimes if they have connections or dealings with entities or individuals subject to sanctions.
New Zealand sanctions
In contrast to its Five Eyes partners, New Zealand does not currently have an autonomous sanctions regime that would enable it to impose unilateral sanctions against Russia. Instead, New Zealand has applied measures available to it under other legislation and policies to impose travel bans against Russia government officials and other individuals, prohibit the export of goods to Russian military and security forces, and suspend bilateral foreign Minister consultations. Although those measures are limited, the wider-reaching sanctions imposed overseas may have impacts for New Zealand businesses.
The US, the UK, Australia, and numerous countries, have used their autonomous sanctions regimes to implement significant sanctions. The sanctions include blacklisting large Russian banks, Russian financial institutions, and state-owned investment funds; imposing strict export controls on dual use goods; and freezing the assets of, and imposing travel bans on, certain Russian companies and individuals. Russia's main banks will soon be removed from the SWIFT international banking payment system.
Given New Zealand's close relationship with Australia, New Zealand businesses are mostly likely to be affected by Australian sanctions. Those sanctions focus on:
- Oil exploration or production: prohibiting the export or supply of certain goods to certain oil exploration or production projects in Russia and the provision of services necessary for those projects
- Arms or related materials: prohibiting the export or supply of arms to and from Russia, the import, purchase, or transport of arms originating from Russia, and the provision of services relating to arms or military activities
- Finance: prohibiting dealing with financial instruments issued by, or providing loans or credit to, designated publicly-controlled Russian banks, specified companies engaged in activities relating to the military and oil industries, and their majority-owned subsidiaries and agents, as well as prohibiting investment services relating to these activities
- Assets and travel: freezing the assets of designated persons and entities, and imposing travel bans on individuals including the Russian President and permanent members of Russia’s Security Council.
Australia has also imposed other sanctions in relation to Crimea and Sevastopol, which will be extended to the Donetsk and Luhansk regions of Ukraine from 28 March 2022, and it has followed the US by sanctioning certain Belarusian entities and individuals.
How the sanctions can affect New Zealand businesses
The autonomous sanctions regimes generally have broad application. For example, Australia's sanctions legislation extends to any person in Australia and any Australian anywhere in the world, as well as overseas companies that are owned or controlled by those persons. It also applies to any person using an Australian vessel or aircraft to transport goods or transact services. The US sanctions regime goes another step further - it applies to US corporations' foreign subsidiaries, as well as transactions involving US dollars or goods of US origin.
What you should be considering
The penalties for contravening sanctions laws are significant. Under the Australian legislation, individuals can be convicted and face maximum penalties of up to 10 years, or the greater of $555,000 (AUD) or three times the value of the transaction. Corporations could be fined the greater of $2.22m (AUD) or three times the value of the transaction. Corporations are strictly liable, unless they can establish that they took reasonable precautions and exercised due diligence to avoid contravening the law.
New Zealand businesses that may engage with Russia should conduct targeted internal reviews to:
- Determine whether the business is subject to overseas sanctions laws, by mapping out the ownership and management (including the nationalities of shareholders, directors, senior management, and employees), as well as the overseas presence, trade routes (including vessels and aircraft), origin and destination of goods, and currencies used
- Examine whether the business has connections or dealings, directly or indirectly, with entities and individuals subject to overseas sanctions regimes, including by reviewing your financial, contractual, or trading relationships, as well as your products and services themselves
- Assess what your business needs to do to ensure compliance with sanctions, as well as how to monitor and detect any changes, and report on and manage the risks
- Consider any wider-reaching consequences for your business, for example:
- assess any potential disruption to your supply chains, as a result of manufacturers, suppliers, transporters, agents, their insurance companies, or their banks being subject to sanctions
- check for any relevant contract termination provisions, including force majeure
- ensure compliance with due diligence and your risk reporting.
Looking ahead - potential autonomous sanctions legislation
Autonomous sanctions regimes have been considered by New Zealand governments in the past. Most recently, an Autonomous Sanctions Bill failed its first reading in September 2021, after the Labour, Green, and Māori parties voted against it. The Foreign Minister described the Bill as "unfit for purpose" because the international environment has changed since it was drafted in 2012, it did not contain sufficient consideration of human rights issues, and due to the government's preference for multilateral responses. The Foreign Minister committed to considering what more the government can do to support the upholding of human rights around the world, including the role that an autonomous sanctions regime could play.
The latest events appear to have pushed those considerations along, with the Prime Minister stating that the government is seeking advice on a specific Russian sanctions bill, so New Zealand may have the ability to impose further sanctions in the coming weeks.
Update - 10 March 2022
On 9 March 2022, the Government passed the Russia Sanctions Act 2022 (the Act), which enables New Zealand to impose unilateral sanctions in relation to Russia's ongoing invasion of Ukraine.
The Act provides a framework for regulations to be made that impose sanctions on individuals or entities that are responsible for, associated with, or involved in actions that undermine the sovereignty or territorial integrity of Ukraine or that are of economic or strategic relevance to Russia.
The Government anticipates that sanctions imposed under those regulations could include stopping the purchase or sale of property, the movement of ships and planes in New Zealand's waters or airspace, imports and exports, the lending of money, and the movement of money.
The regulations may apply in relation to:
- People in, entering, or travelling to New Zealand
- Dealing in New Zealand with assets, or services for people, that are outside New Zealand
- New Zealanders and New Zealand entities dealing with assets or services outside New Zealand.
In addition to extraterritorial application for the acts of New Zealanders and New Zealand entities, proceedings may also be brought for any breach of the Act on board New Zealand ships and aircraft.
Breaching a sanction without lawful justification or reasonable excuse is an offence that has a penalty of imprisonment for seven years and/or a fine not exceeding $100,000 (for individuals) or a fine not exceeding $1 million (for entities).
Based on Government announcements, the first regulations under the Act are expected in the next week.
This legal alert was prepared by Laura Green (Legal Adviser) and Emily Tyler (Solicitor).